Thinking about jumping into gold investment? There are some things you need to be aware of.
One thing you certainly need to know is what affects the monetary value of gold. This is determined by a couple of different market forces that operate in different ways. Keep reading to become an expert in what controls the price of gold in Singapore.
Gold Price Factors
Gold price is dictated by the fluctuations of a combination of factors, rather than a single influence.
Fiat Currencies
The gold standard used to be what determined the value of a country’s currency. The more valuable the gold, the more a unit of currency was worth.
Most countries today do not use this system and instead use a system that uses the monetary supply of the government to determine its value.
This system gives the government more freedom to move its money supply to suit its economic policies, rather than how much gold can be held in its treasury.
However, when the trust in the government falls, the value of the currency falls with it.
This often means that people turn to gold to prevent their wealth from devaluing too much. This works because gold has historically had a very steady value.
Conversely, if a currency does well then the price of gold is likely to go down.
This is because the demand for gold dips as investors sell off their stocks. This means that gold often has an inverse relationship with strong currencies, like the US dollar.
Demand
Gold is a commodity that is highly coveted. Aside from being a precious metal, it is also used a lot for manufacturing and essential machinery, like life support machines.
Gold can also be traded as an investment.
You can choose to own physical gold – in the form of bullion, jewelry, or coins – or paper gold – as in Gold Exchange Traded Funds – whatever is more convenient. Some investors even choose to purchase gold mines.
An increase in the demand for gold will increase its price.
Look at other Asian countries – China and India alone have fuelled the recent demand for gold due to their vast economic growth.
This led to a steep increase in the price of gold, though this is now slowing down as their economies become more stable.
Gold Availability
Every year, roughly 2 500 000kgs of gold is mined and added to the available gold stock in the world.
This is not enough to fulfill the entirety of global demand in any year.
As such, the price of gold is kept fairly consistently elevated. In years where less gold than expected is mined, gold prices are pushed up even further.
The demand and supply discrepancy of gold is likely to worsen in the future as it is estimated that only around 20% of the world’s gold is left to be mined.
Keep in mind that this figure is not definitive as new technologies increase the efficacy of the mining process.
Gold Is A Safe Asset
Gold is by far one of the safest assets that you can accrue. It can retain its value in the most volatile of conditions and is not affected by external factors – including the cost of living – unlike money.
To this end, central banks will keep their own gold reserves to remain solvent in a financial crisis.
This is possible because gold prices increase with economic uncertainties as other factors develop.
During 2020, for example, the price of gold skyrocketed while global currencies fluctuate.
Those with gold assets were able to keep their portfolio risks to a minimum, as opposed to those with less stable assets in bonds or equities.
Gold Price In Singapore
Singapore’s Government does not control or dictate the price of gold. Neither does the Monetary Authority of Singapore.
They may fulfill a policy that would indirectly affect the price of gold, but they do not have any control or substantial influence over it.
In the summer of 2021, the MAS bought over 26 tonnes of gold.
This is a substantial increase in the gold reserve in Singapore.
Such a large purchase will have raised the demand for gold against availability, which will have driven up gold prices.
The reasons for the reserve increase have not been disclosed, but it may be in response to some economic uncertainty. The Singapore Dollar does not derive its value from the price of gold.
It is a fiat currency that derives its value primarily from other Asian currencies, including China.
It is, therefore, possible that the MAS sought to increase its reserve in response to economic uncertainty in other countries.
Economic uncertainty has an inverse relationship with the price of gold.
So, again, the MAS does not control the value of gold but acts in such a way and on such a scale that it will have an impact.
Final Thoughts
There is no central body, agency, or person in Singapore that controls the price of gold.
It may be possible that the government or MAS acts in a way that will impact the price, but this will be under the guise of one of the main four influencing factors.
These factors are:
- Fiat currencies
- Demand
- Availability
- Asset safety
